Jubilant Foodworks
BSE SENSEX
28,773
S&P CNX
8,867
22 September 2016
Update
| Sector:
Retail
CMP: INR975
TP: INR1,090(+12%)
Neutral
Long-term strategy unchanged
Awaiting clarity on new CEO, near-term outlook weak
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val, INRm
Free float (%)
Financials Snapshot (INR b)
Y/E Mar
2016
2017E
2018E
JUBI IN
65.8
1689 / 897
-24/-34/-50
64.2
1.0
613
55.0
Net Sales
EBITDA (INR b)
Net Profit
EPS
EPS.Gr. (%)
BV/Sh. (INR)
P/E (x)
P/BV (x)
RoE (%)
RoCE (%)
24.4
2.6
1.0
15.0
-11.7
111.3
65.2
8.8
13.4
14.1
26.8
2.8
0.9
14.0
-6.2
124.2
69.5
7.9
11.3
11.9
32.8
4.0
1.6
24.5
74.7
130.6
39.8
7.5
18.8
19.2
Shareholding pattern (%)
As On
Jun-16 Mar-16 Jun-15
Promoter
45.0
48.7
48.8
DII
12.2
8.9
4.5
FII
31.7
34.3
41.5
Others
11.1
8.1
5.2
FII Includes depository receipts
Stock Performance (1-year)
Jubilant Food.
Sensex - Rebased
2,000
1,700
1,400
1,100
800
We met management (CFO Mr. Sachin Sharma and Sr. VP - Chief IR Officer
Mr. Arvind Vats) of Jubilant Foodworks. Following are the key takeaways from this
meeting:
No demand pick-up yet:
2QFY17 SSSG is likely to be positive due to the launch
of
Burger Pizza
(which is receiving good response), Ramadan impact in the base
quarter and sales of
Pizza Mania Extreme
for the entire quarter. There was no
mention of demand pick-up. Discretionary spending is expected to improve in
2HFY17, led by good progress in monsoon and 7th Pay Commission. Commodity
inflation continues, but remains benign (around low-single-digit).
Driving efficiencies in operations:
1) Working with vendors to drive efficiencies
in supply chain. 2) Six Sigma project initiated to reduce headcount further
(already successful in reducing 1-2 employees/store due to OLO and cost
cutting). 3) Automation in commissaries (The Greater Noida mega commissary
will be up and running by FY17-end). 4) Will use data analytics in a bigger way.
Use of data analytics in Domino's India was significantly less compared to the US
and Japan. Studying customer ordering patterns and customizing promotions
can offer growth opportunities.
Control over key costs crucial for near term:
Minimum wage increase in Delhi
(potentially over 40%) and Karnataka (over 25%) could adversely affect staff
costs to sales. The company renegotiates lease rentals every 9-12 years, and
many stores are up for renegotiation every year. Management’s ability to
negotiate for a small increase will determine the movement of rental cost to
sales. In absence of price increases, control over these two costs is crucial.
Other key points:
The gap between average system store sales and new store sales is increasing.
Moreover, average system sales itself have come down. New stores (in the
slowdown period) have much lower margins than earlier.
The company has discontinued products like
Subwich, Junior Joy Box
and
Custard Bliss.
New products are launched with certain internal objectives,
including contribution to the overall mix; if these conditions and product RoI
expectations are not met, then products are discontinued.
According the company's internal Value for Money (VFM) measuring
mechanism, there has been an increase in the number of customers who have
reservations about price-value equation of Domino's in India. The company has
already stated that it will not take price increases this year. It also indicated in
our meeting that the focus is on the lower price segment, and thus has
launched
Burger Pizza
and
Pizza Mania Extreme
so far this year.
Capex:
INR2.5b for FY17 (new restaurants + Greater Noida commissary +
technology + working capex of stores).
Retaining Neutral:
The stock trades at 40xFY18 EPS of INR24.5, a premium to
peers despite the weaker outlook. We have a
Neutral
rating on the stock. We
will wait for more clarity on the hiring of new CEO, and for a further correction
in the stock price before turning more constructive.
Krishnan Sambamoorthy
(Krishnan.Sambamoorthy@MotilalOswal.com); +91 22 6129 1545
Vishal Punmiya
(Vishal.Punmiya@MotilalOswal.com); +91 22 6129 1547
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.